‘Dynamic Scoring’ the newest fad in tax reform

By Edgar T. Wilson
Nov. 27, 2014

Taxes

Even though filing taxes is an obligation of all citizens, it is also a profession—actually, a consistently high-demand profession. The few, bold Americans who file their own taxes still have to rely on filing software and receive digital assistance to make sure they get it done correctly. And even a correct filing runs the risk of the much-feared audit.

For these reasons (and so many more), “Tax Reform” is a perennial campaign promise for candidates at every level, from every party. You have the unflappable Libertarians calling for abolishment of all taxes not necessary to basic government functions, then the Republicans and Democrats targeting the villain of the week with calls to eliminate loopholes and cut benefits, because those guys are always getting away with something the rest of us shouldn’t stand for.

Of course, the politics of finger-pointing face the constant challenge of finding consensus. If your main gimmick is pointing out differences between you and the other guys, common ground is a third-rail.

Yet in the wake of 2014’s mid-term elections, we now have a single-party majority in both houses of Congress — to the extent that the GOP still counts as a single party. Libertarians, Tea-Partiers, and all manner of single issue candidates do tend to run as Republicans for one reason or another.

So the law-making branch has a dominant call sign once again: GOP. That must mean that reform is on the way…right?

Actually, yes. Just not the reform you might have expected.

For any change to gain popularity (in Congress or among the general public), it has to look good on paper. Trouble is, depending on who you ask to run the numbers, you will get different results, even for the same proposed reform. That is why the new Republican Congress made their top priority not the tax system itself, but the Congressional Budget Office rules for accounting.

The new rules, known as Dynamic Scoring, take into account how reform might affect the economy. The former set of rules used a sort of “all things being equal” approach. That is, cutting tax revenue means lost revenue, period. Raising taxes means more revenue, period. Dynamic scoring, on the other hand, posits that cutting taxes will stimulate the economy, resulting in more federal revenue; raising taxes would hurt business, resulting in less revenue. The same policies, but producing different outcomes.

If the Republican outlook sounds familiar, that’s because it is rooted in Supply-Side Economics (popularly known as Reagonomics or VooDoo Economics). By building this theory into CBO accounting rules, (which they succeeded in doing the first week of 2015) they essentially paved the way for their preferred policies to receive consideration.

This is by no means a guarantee that tax reform will come flying through over the course of 2015. Even with the rule change, it remains devilishly difficult to fully account for any changes in the tax code. All of the myriad breaks and incentives, income brackets and write-offs come with a diverse group of interest groups, all of whom will tend to fear change. Promises that guarantee a certain behavior — like more consumer spending — are unlikely to quell such fears.

Republicans have their majority, and now they have their rule change. Soon starts the carnival that is a Presidential election. The question of whether Republicans can also secure the White House is very likely to keep dramatic reform from advancing until after President Obama has left office—or longer.

One thing you can count on is more (many more) tax promises.

Edgar grew up in small-town Oregon before going to Amherst College. His proximity to Smith College and Mount Holyoke College opened his eyes to the gaps — racial, gender and ethnic — that exist in this country, and pushed him to switch his major from communication to conflict resolution. He has since worked abroad in several Southeast Asian countries, which deepened his interest in the field. He is now a writer and blogger. He can be reached for comment by email.

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